NON-TELECOM UTILITIES: Pipe Dreamers

That the rules of the game of Indian telecom sector have

changed is passe. What’s new is the announcements made during the last couple

of months by the Indian Railways, Power Grid Corp of India (PGCIL), Gas

Authority of India (GAIL) and Indian Oil (IOC). And despite the fact that these

non-telecom utilities are from different fields of operation, they have one

common objective–to use their existing infrastructure across the country. They

also aim to generate additional revenue from the new telecom game of networking

the bandwidth-starved nation.

While the Internet Service Policy 1998 and the National

Telecom Policy 1999 allow these companies to create electronic and photonic

transport infrastructure, what has made the proposition so lucrative for these

public sector utilities is that they have one great asset–right of way (ROW).

In fact, experts believe that this is where the incentive for them to get into

the business of telecom transport lies. Unlike the radio systems, especially the

satellite-based ones, any cable system is feasible only if those willing to get

into this business have a well-defined ROW through which the optical fiber cable

(OFC) can be laid.

Not that those without existing ROW cannot succeed in this

game, but then the alternative cost may sometimes be too high. Also, getting

fresh ROW for laying cables involves lot of procedures and clearance from

various government agencies, which may lead to time and cost over-runs in these

projects. Take the case of these four utilities. Railways leads the pack with

its clear and uninterrupted ROW over a 62,800 route-km. While, PGCIL has a clean

and sturdy transmission infrastructure of a 40,000 circuit-km and IOC is talking

about leasing out bandwidth capacity along its huge 5,000-km pipeline network

spread across the country. GAIL has plans of setting up a north-west-south

broadbrand network over its existing and planned ROW spread over 9,500 km.

What’s more, PGCIL, and to a certain extent Railways, also

have structures like transmission towers, pylons and posts ready along their

ROW. They also have OFCs laid in bits and pieces along their network of

transmission lines, rail track and pipeline. This also means that unlike the

several private sector players, these utilities already have the ROW cost sunk.

To be able to utilize it for laying OFC not only means improving their own

telecom connectivity, it also provides them ample opportunity of additional

revenue with lower investment. According to experts, the cost of the OFC would

only be about 25% of the total investment while the major chunk of cost is

towards ROW and laying the cable. Not to miss the fact that these companies will

continue to expand their ROW for their core utilities and utilize it to further

spread its OFC network.

The business model

While the four of them have been optimistic about their new

venture, they have been trying to work out the best feasible option to suit

their business needs. They have also been scouting for technical partners and

consultants. According to experts, however, such utilities can in a broader

perspective have three options before them. First, they can either sell or lease

their ROW to other players. Second, they can lease capacity by first creating

it. These may be dark cables or they may choose to light it up before leasing or

selling it. Third, these utilities can themselves become service providers.

Utilities, particularly the electricity companies, can also

sell or lease their ROW as well as their towers, posts and other infrastructure.

This would make it much easier, cost-effective and fast for the service provider

to install OFC. These companies also have the option of laying the cables

themselves. According to TH Chowdary, chairman, Centre for Telecom Management

Studies, these utilities can also form joint ventures (JVs) with companies

engaged in telecom transport and service business by placing value on ROW and

use of infrastructure. This model would also mean that their capital

participation gets frozen forever. Alternatively, they can form a JV where,

besides their capitalized ROW and other assets, they can also invest money to

create capacity, which can be priced to realize revenue.

Another model, or the third option as mentioned above, is to

create capacity and get into the service business directly. The IOC board of

directors had rejected the option of becoming an ISP after much deliberation as

it was not its core business. It seems that the Railways and PGCIL have more

ambitious plans (see box). And GAIL seems to have adopted the policy of creating

the capacity and leasing it out to both the operators and the end-users.

According to Mahesh Uppal, director, Telecom and Computer

Information Systems, the simplest thing for these companies to do is to choose

the first option: sell or lease their ROW to other players. ‘‘However, in

case they decide to create the capacity or get into services themselves, their

success would depend on their understanding of the technology and the service

industry,’’ he adds. Uppal also feels that apart from deep pockets, these

companies would also need thorough understanding of the policies and regulations

governing the sector to sail through the rigors of the telecom business.

Shirish Kanetkar, regional manager, Cisco Systems India,

agrees, ‘‘These utilities will need to understand that there is a big

difference between a pure infrastructure provider, a pure service provider and

those who own infrastructure and provide services. And the rule of the game is

different for each of them.’’ He adds, ‘‘The best option for these

players is to join hands with those who specialize in this game.’’ According

to him, these companies, especially the Railways have the best ROW in terms of

reach and penetration. ‘‘One good option for these utilities would be to

form a consortium and bring in a world-class technical partner to jointly

implement their dream,’’ he suggests. Not a bad idea if we consider the kind

of network these four can create together.

Perils of delay

While experts feel that it is too early to make a value

judgement on the plans of any of these four utilities, they share one fear–will

these public utilities be able to do away with their time-consuming processes

and capitalize on the ROW advantage?

Take a look at their competition. With the opening up of the

domestic long distance (DLD) telephony, the telecom ministry has given the the

final go ahead to push the industry’s plan to create new networks in the

country. Today, these networks are being rolled out by almost every category of

players–from the cable operators to ISPs to fixed service providers to those

looking ahead to become DLD operators. Also, most of the players are laying

fiber-optic cables as it is considered to be a one-time investment. This is

aimed at creating capacity that can be subsequently increased using technologies

like dense wave division multiplexing. And companies that provide this include

Reliance, BPL, Hinduja, SitiCable, Spectranet, RPG Netcom, Bharti, Caltiger,

Dishnet and HFCL. MTNL and VSNL are also working on plans to have their share of

the cake.

According to experts, while these private players may be

spending fortunes on securing the ROW, they have the requisite technology and

experience to fight for their share of the new network market. Expressing

apprehensions about their ability to implement projects at the speed that is

required, Chowdary remarked that the government departments and PSUs have no

value for time. ‘‘There is hardly any project that does not have time and

money over-runs,’’ he says. The reason, according to him, is the various

bureaucratic controls exercised by the administrative ministries, which despite

being totally unaccountable do not desist from back-seat driving. ‘‘For

them, process is more important than the purpose,’’ he quips.

According to him, though from the user point of view the

existence of competing transmission infrastructures is good, how these

enterprises propose to make money is a big question. ‘‘If they form a

subsidiary company, and put a dynamic business-savvy young executive as CEO with

vision, then they can hope to make a success of their intention. If the projects

are to be scrutinized, apprised and sanctioned by the administrative ministry

and the ministry of finance, they can rest assured that they would be left

behind by their private sector competitors,’’ he says categorically.

Only the early bird gets the worm, as the saying goes.

SHUBHENDU PARTH



in New Delhi